Application of Value-at-risk to forex exposure: Dr Reddy’s pharmaceutical company

Type :

Term papers

Pages :

35 pages

Format :

.doc

Published date :

04/20/2009

Category :

Economics & finance

Sub category :

Finance

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Summary :

Introduction
Implementation of risk management system at Dr Reddy's
Types of financial risks
Review of the literature
1. Definition of value at risk (VAR)
The need for risk management
Methods of VAR calculations
Data analysis and interpretation
Conclusion
Bibliography

Abstract

risk can be defined as the volatility of unexpected outcomes, generally the value of assets or liabilities of interest. Firms are exposed to various types of risks, which can be broadly classified into business and non-business risks.

Business risks are those, which the corporation willingly assumes to create a competitive advantage and add value for shareholders. Business or operating, risk pertains to the product market in which a firm operates and includes technological innovations, product design, and marketing. Operating leverage, involving the degree of fixed versus variable costs is also largely a choice variable. Judicious exposure to business risk is a "Core competency" of all business activity. Business activities are also subjected to macroeconomics risks, which result from economic cycles, or fluctuations in incomes and monetary policies.

Other risks, over which firms have no control, can be grouped into non-business risks. These include strategic risks, which result from fundamental shifts in the economic or political environment. Expropriation and nationalization also types of strategic risks. These risks are difficult to hedge, except by diversifying across business lines and countries. Financial risks are those related to possible losses in financial markets, such as losses dues to interest rate movement or defaults on financial obligations. exposure to financial risks can be optimized carefully so that firms can concentrate on what they do best - manage exposure to business risks.